11th Dec 2023


Will Europe benefit from China's grand new strategy?

  • The EU-China summit takes place on 21 November (Photo: Stefan)

In the 1980s, Deng Xiaoping’s economic reforms and opening-up policies enabled China to industrialise through investment and export-led growth.

After Beijing’s Third Plenum, the new grand strategy by President Xi Jinping and Premier Le Keqiang allows China to move toward a post-industrial society and consumption-led growth, along with increasing regional integration.

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Since last September, trade tensions over solar panels have clouded bilateral relations between the two sides.

After the post-Iraq honeymoon period in bilateral ties, Brussels has been reluctant to end the arms embargo on China. The bilateral friction also includes Brussels' measures against Chinese textile exports in 2005 and the latest anti-dumping and anti-subsidy investigations against China's solar panels.

While strategic partnerships will be the main focus of the China-EU summit starting in Beijing on 21 November, both sides hope to eventually sign an investment agreement aiming to reduce simmering trade tensions.

The key question is whether Brussels can take full advantage of the Chinese reform wave that was officially launched in the just-concluded Third Plenary Session of the eighteenth CPC Central Committee.

Series of economic and strategic reforms

In the past few months, China’s new leadership, President Xi Jinping and Premier Li Keqiang have provided glimpses of economic reforms, which have now been officially launched.

Based on the “3-8-3 Plan,” they comprise tripartite reforms, focus on eight sectors and involve three reform packages.

The tripartite reforms cover the market, government and companies. In each case, the goal is to reduce the government’s role in the economy. The eight core sectors comprise finance, taxation, state assets, social welfare, land, foreign investment, innovation and good governance.

In turn, the reform packages seek to relax control over market access, launch social security and allow sales of collectively-owned rural land. The household registration system ("hukou"), which continues to discourage migration, will be phased out by easier access to urban hukou for third-tier cities.

These proposals have been shaped by Chinese think tanks, but the broad outlines have been authored by Li Wei, the ex-secretary of the former premier and tough reformer Zhu Rongji, and Liu He, a reformer who serves as the economic adviser to President Xi Jinping.

The new growth model draws from policy blueprints shaped by the "China 2030" project, which Liu He’s team has developed in co-operation with the Chinese State Council and the World Bank.

Most new reforms, which will be spearheaded by a central leading team, are likely to be phased into policy over the next five to 10 years.

While the team may be led by Premier Li, it could be headed by vice-premier Wang Yang, known for his reforms in Guangdong, and be assisted by Han Zheng, Shanghai’s party secretary.

Broader and deeper potential for Sino-EU cooperation

All of these Chinese reforms, sectors and packages offer new opportunities for EU-Chinese co-operation, particularly for European multinationals in the mainland.

Overall, the tripartite reforms reflect the stated wishes of the pan-European institutions, most European governments and all European multinationals. Most importantly, the sectoral reforms will offer new opportunities to a broad array of old and new European players.

The mainland’s shift toward consumption-led growth has the potential to attract European consumer industry giants, in addition to the current high-tech leaders.

China’s efforts to accelerate innovation are likely to increase the European interest in joint R&D ventures, just as they reflect Chinese multinationals’ rising interest in European innovation hubs.

China’s massive urbanisation plans are likely to attract European infrastructure, construction and real estate players, particularly in third and fourth tier cities.

Meanwhile the hukou reforms may lessen Brussels’ criticism over Chinese migrant conditions, which have been fuelled by human rights perspectives.

While the expected privatisation of China’s state-owned enterprises will not proceed as fast as Brussels might want, the direction of the mainland’s state assets reforms will gain support in Europe as well.

Since early fall, the new leadership’s economic reforms have been fuelled by Shanghai’s free-trade zone.

The FTZ has evolved along with financial reforms, which will offer new opportunities to European banks and financial intermediaries.

Most importantly, China is opening doors to foreign investors and financial institutions.

The reformers seek to make the renminbi fully convertible and into a major international and a reserve currency within a decade. In Europe, the most pro-active financial centres, particularly the City of London, have moved aggressively ahead, hoping to ensure early-mover advantages in joint co-operation.

While both China and Europe are coping with challenges in energy, resources and climate change, both are supporting global efforts on green energy and sustainable technologies. In these areas, there is immense potential for co-operation as well.

While many observers like to focus on bilateral opportunities in Euro-Chinese relations, that approach is too narrow and simple.

China’s economic reforms come along with new regional integration, which also holds great potential for European interests, due to the broad, inherent potential of the emerging Asia.

Europe lagging behind China’s regional rebalancing

As the momentum of economic growth is shifting from the transatlantic axis to Asia, Washington and Beijing are rebalancing their foreign policies in the region.

While the build-up of US forces in Asia has intensified since 2011, China’s pivot concentrates on trade and development across Asia.

In the past, Chinese foreign ministers were US or Russia experts. Now the emphasis is back in Asia.

State councillor Yang Jiechi is focusing on China’s grand strategy in the region. Asia expert Wang Yi serves as chief of foreign ministry, while Washington ambassador Cui Tiankai, is also an Asia specialist.

Unfortunately, the Chinese pivot is still poorly understood and often misunderstood in Europe - particularly the nature of the “spillovers” of Chinese trade and investment in the region.

A few weeks ago, President Xi Jinping proposed joint efforts with the 10 Association of Southeast Asian Nations (Asean) member states to develop a ”Maritime Silk Road.”

In Brunei, Premier Li Keqiang outlined China’s 10-point Asean initiative for friendship and co-operation, security exchanges, bilateral trade to $1 trillion by 2020, an Asian infrastructure investment bank, and co-operation in maritime and regional finance.

In China and broader Asia, much of the GDP is generated by foreign multinationals operating in the region. As a result, Chinese investment and trade offer great opportunities to these companies, including European firms.

Washington is in a hurry to complete a Trans-Pacific Partnership (TPP), which includes advanced economies in Oceania, all North American Free Trade Agreement, or Nafta, partners, advanced Asean states, two Pacific nations and East Asia, minus China.

The TPP, in turn, has intensified Asian-Pacific co-operation in which China does have a role, particularly through free trade talks among the 10 Asean member states, and their free trade partners.

These talks aim at a Regional Comprehensive Economic Partnership (RCEP), which excludes the United States.

In brief, there is a massive trade bloc rush across Asia. And yet, in this race Europe is participating only indirectly, belatedly and inadequately. This is even clearer in view of Chinese rebalancing in South and Central Asia.

From Pakistan to the BCIM Economic Corridor

After the May election victory of Nawaz Sharif and the Pakistan Muslim League (PML), Pakistan is moving toward development. Economic co-operation has accelerated with a free trade agreement and China’s assistance in the development of Pakistan’s infrastructure.

While Beijing is Islamabad’s third-largest trading partner and its largest supplier of arms, it has helped in building the Khushab nuclear reactor and is the largest investor in Pakistan’s deep-water port at Gwadar, at the mouth of the Strait of Hormuz.

At the same time, European governments and businesses have scaled down or divested their representation in Pakistan.

Meanwhile, trade between Dhaka and Beijing exceeded $8 billion in 2012, and has been coupled with increasing defence procurement.

Recently, Bangladesh’s foreign minister Dipu Moni met his Chinese counterpart Wang Yi in Beijing to push forward the Bangladesh-China-India-Myanmar (BCIM) economic corridor, which comprises Bangladesh, China, as well as Myanmar and India.

The BCIM reflects China’s rising maritime power, which is encountering its US counterpart along the sea lines that connect China to energy resources in the Middle East and Africa.

While Brussels, European governments and multinationals could greatly benefit from such regional integration, the key European players continue to have minimal presence in the core nations and the region.

The Chinese pivot extends from South and Southeast Asia to Central Asia.

Today, the SCO’s six full members account for 60 percent of the landmass of Eurasia and a quarter of world population.

In the Xi-Li era, the new SCO trend toward economic development is likely to strengthen.

Brussels, European governments and companies can support such positive developments best by participating in it, rather than staying away.

Unlike Washington, Brussels has minimal security interests in Asia Pacific. But like Washington, Brussels tends to look at the region through security-coloured glasses. That is precisely the wrong approach at the wrong time.

Chinese grand strategy as European opportunity

During the Third Plenum, Beijing also instituted a national security agency to co-ordinate efforts of various government departments covering intelligence, the military and foreign affairs.

Emulating the US National Security Council (NSC), the new agency can also be seen as a response to the US National Security Agency’s (NSA) extensive cyber spying globally.

Naturally, Beijing, as Washington’s strategic partner, and Brussels, as Washington’s strategic ally and Nato member, respond in different ways to such challenges. However, both have been perplexed by the disclosures of the ongoing debacle created by NSA leaker Edward Snowden.

What Euro-Chinese relations need is broader and deeper co-operation, which, in turn, has potential to support Chinese reforms and innovation.

In the past, foreign investment was a one-way street, with foreign multinationals investing in China. That era is now history. Between 2006 and 2009, Chinese investment into Europe tripled. And it triple again from 2009 to 2011. Last year, Chinese investments in Europe totalled $12.6 billion, up 21 percent over 20011.

At a time when the Eurozone is coping with minimal growth, possibly a lost decade, Chinese investment is a vital vote of confidence for Europe’s longer-term future.

Indeed, China’s new grand strategy - market-driven economic reforms coupled with deeper regional integration - is very much in the European interest.

If Brussels, European governments and businesses respond to Chinese reforms only partially and narrowly, they risk falling behind even further in economic growth and political influence.

If, however, they seek to respond fully and broadly to Chinese reforms, the bilateral relations have potential to move to an entirely new stage in the future.

The writer is a fellow at the Shanghai Institute for International Studies, a think tank


The views expressed in this opinion piece are the author's, not those of EUobserver.

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